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Recently, Kenanga Research visited Jaks Hai Duong Coal Power plant guided by the CFO of Jaks, Steven Ang 
I have extracted some from the research report for reference here;
"To provide some colour, the plant is designed to generate an output of 2 x 600 MW under a build-operate-transfer model after 25 years with the Vietnamese government, with total construction project revenue to JAKS of RM1.89b to be recognised over phases of completion. Currently estimated to be 55% completed, management anticipates that it is able to commission the first of its two turbines possibly by the end of 2019. The second turbine should then be set to be completed 6 months after this. This is ahead of the initial handover deadline to the Vietnamese Government of November 2020. Addressing any contingencies in place to prevent delays, management mentioned that the integral equipments (i.e. turbines, boilers) for the plant are already onsite, with non-foreseeable issues to source smaller components. Building materials for the plant are also easily sourced from local suppliers. Furthermore, CPECC management and supervisors are consistently on the grounds to monitor the progress closely.
Assuming the full commissioning of the plant, an expected 15,000 mt/day of coal is to be consumed to support a minimum utilisation required of 77% for both turbines. The supply of coal has been committed to be backed by the local coal authority, which is well facilitated with the construction of an inland port/jetty close to the site. Additionally, coal storage areas are being built to store up to 10 days’ worth of fuel, in the event of any hiccups in delivery. Charging on units of power produced, assuming the plant is able to keep up with the minimum utilisation requirement; the project is expected to yield up to USD120.0m/year of net-of-tax profits.
With the completion and full commissioning of the power plant, the group is slated to receive associate profit of c.RM150m/year for the next 25 years. Further, the plant is expected to enjoy tax incentives for the first 6 years of operations. This would skew the group’s business portfolio to be mostly energy-based, after recognising the last mile of the power plant's outstanding bill (only 46% billed in 4Q18 results, RM1.02b unbilled as of now, estimated to account for 70% of its total order-book), which should also be a significant boon to the near-term earnings profile. Key risks would be from any hiccups, which may delay the completion of the project until after its Nov 2020 deadline. We are less optimistic on the group’s property segment as footfall and tenants appear to be only picking up slowly despite its strategic location."

The Net-of-Tax profit of US$120m, provided by the research report, sparked much debates when many sifus tried to unlock the matrix behind the figure.
I m taking this opportunity to present my view.

Sifu Probability tried the following calculations and remain puzzled ; 
( I wish to express appreciation for Sifu Probability's contribution)
Price of coal= 115 USD/ton
Price of electricity = 0.08 USD/KwH
Electricity generated per ton of coal (max) = 2,460 kWh/ton
2460 kWh = 196 USD
Meaning you create about 196 USD dollar (max consumer value) per 115 USD coal you consume
Max gross margin (excluding all other costs) = 80 USD / ton of coal 

For a 7.5 Billion kWh per annum power plant (as per DK66 derivation at 77% utilization), your minimum coal consumption would be:
= 7,500,000,000 kWh/ (2460 kWh/ton)
= 3 million tons coal per annum
Gross profit max = 240 Million USD per annum
so the estimation by the banker ( 120 M net profit) perhaps makes sense

Selling Price of electricity: = 0.080 USD/KwH (1)
Electricity generated per ton of coal (max) = 2,460 kWh/ton
1 ton coal : 115 USD (cost) : 2460 kWh (electricity) : 196 USD (final consumer price)
Means the cost from coal per kWh sold:
= 115 USD/ 2460 KWh
= 0.047 USD/ kWh 

we can see from above that the cost of the coal (2) easily wipes out the net profit margin of Jaks (3).....as JAKS incurs this unlike the hydropower plant of MFCB

even if Jaks manage to transfer 50% of the cost of their coal (increase tariff by VND 546/kWh from VNĐ 1,864 to VND 2,409), they will still be generating a loss.

It is a real serious concern 

150M profit is 0.015 USD /kWh generated by JAKS

Considering Coal cost of 0.047 USD/kWh, and considering start up risks, plant maintenance cost, and the fact that they have to politely request Government to raise selling price per kWh...

this 150M seems easily vaporizable.... 

1) MFCB Selling Price of electricity (Max): = 0.080 USD/KwH (1)
2) MFCB net profit, adjusted as per debt structure of JAKS:  = 0.023 USD/kWh (2)
3) MFCB cost of production, 'variable + Fixed' distributed per kWh:  = (1) - (2) = 0.057 USD/kWh (3)
4) The additional variable cost of production due to Coal by Jaks above MFCB is at least: = 0.047 USD/kWh (4)
5) It is known from literature that hydroelectric variable operating cost is less than 0.010 USD/kWh compared to coal gasification at 0.04 to 0.080 USD/kWh
6) As such in order for JAKS to still make 150 M profit as someone had promised, i.e 0.015 USD/kWh, someone (EVN or Government) has to subsidize by this amount: = 0.015 USD/kWh (the net profit) :

= Selling price (1) - MFCB cost (3) - JAKS additional cost of coal (4) + subsidy (X)

Subsidy (X) from above works out to be = 0.039 USD/kWh

That is like 400 Million by someone for JAKS alone at 30% stakes.

Who the HELL is going to fork out 1.2 BILLION RM annually for FREE?

The following news in 2017 has proven his point;
"Steep increases in global coal prices are forcing Vietnam’s coal-fired power plants deeper and deeper into the red as they struggle to minimize losses caused by cost overruns worth billions of U.S. dollars.
Coal prices have steadily risen since early 2016, adding an addition US$1.27 billion in costs for importing coal to Vietnam o, according to the Institute for Energy Economics and Financial Analysis.
Australian Newcastle coal, an important source for Vietnam’s coal needs, has more than doubled to reach an average of $100 per metric ton since the beginning of 2016.
Prices for Newcastle coal hit a 2017-high of $103.5 per ton this year, driven primarily by Asian demand, according to Reuters."

Sifu Probability has clearly established that Jaks Hai Duong Power Plant is not viable without government subsidies. Government subsidies indeed is the case for vietnam electricity industry.
"Industry analysts say the country’s heavily subsidised electricity prices are one of the key reasons behind a supply shortfall that leads to regular blackouts and is one of the top concerns for investors.
Vietnam raised the average electricity price by more than 15 percent at the start of March, a move that industry officials said aimed at reducing losses for EVN and making the sector more attractive for investors. "
"The electricity price in Vietnam in 2011 was around 6 US ¢/kWh which is lower than the Long Run Marginal Cost (LRMC) of 9.5 US ¢/kWh. This low price discourages energy productivity enhancement and affects energy supply security. Thus, the Government of Vietnam plans to increase the electricity tariff. This study examines the impacts of increasing electricity tariff to the LRMC on prices of consumer goods and services and the likely distribution impacts by household income quintiles using a static Input-Output approach."
Therefore, when Jaks signed the PPA with EVN in 2011, it could not possibly has used 6 US Cents as the basis for computation to determine the viability of the project.

What was the Matrix used in the PPA ?
To uncover the matrix is not extremely difficult, though I admit would require some lengthy research to understand the rationale behind the structure of the tariff payment. Once understood, the logic would explain itself. I will walk you through my logic.
"The PPA provides for EVN to purchase and the BOT Company to sell electricity generating capacity and electricity generated by the Facility for 25 years after the commercial operation date of the Facility unless extended or earlier terminated as stipulated under the PPA. The tariff charged by JAKS Hai Duong to EVN comprises the capacity charge, energy charge and supplemental charge. Fuel (coal and secondary fuel) and limestone costs will be passed-through costs under the PPA.
The Capacity Charge is a fixed payment that is paid each period for each kilowatt of available (not dispatched) capacity.  It includes fixed charges involved in the construction, operation, and maintenance of the power plant, including charges for: – Repayment of the principal and interest of the debt used to construct the facility – Return on equity capital invested – Fixed operation and maintenance (O&M) costs that are independent of the amount of energy generated (e.g., staffing costs, administrative expenses, operator fee, insurance premiums, etc.) – Possible fixed costs related to fuel supply and transportation, such as demand or through-put charges, or minimum take-or-pay obligations.
The Energy Charge is paid each period for each kilowatt hour of energy dispatched and delivered at the agreed delivery point during that period.  It includes variable costs involved in the generation of the energy delivered, including charges for: – Commodity charges for each unit of fuel used, including the cost of fuel and its transportation to the plant – Variable operation and maintenance costs (e.g., spare parts, lubricants, and other consumables) – A major maintenance sinking fund to cover the costs of required turbine maintenance based on usage.
The Supplemental Charge covers other costs not included in either the Capacity or Energy Charges, including:
– The costs of start-ups beyond an agreed number each year reflecting the cost of fuel per start-up and likely a contribution to the major maintenance sinking fund
– The costs of ancillary services provided if such services are included in the scope of the PPA
– Any supplemental charges for repairing damage to the facility as a result of a Force Majeure event if such repair is the responsibility of buyer."

Total Tariff Payment = Capacity charge + Energy Charge + Supplementary Charge
The capacity charge is a fixed payment that is paid each period for each kilowatt of dependable capacity made available to EVN
The Energy charge is paid each period for each kilowatt hour of energy dispatched to EVN
To further breakdown the matrix;
Tariff payment (TP)  = Capacity Charge (CC)    + Energy Charge (EC)    + Suppl. Charge (SC)
   - Construction Cost  - Fuel costs  - Exchange Difference
   - Loan Principal  - Fuel transport cost  - Compensation
   - Loan Interest  - Variable O&M  - Other services
   - Return on Investment  - Variable Sinking Fund  
   - Fixed O&M     
                   X                   X  
  Available Capacity (AC) Electricity Output (EO)  

TP = (CC x AC) + (EC x EO) + SC
CC - Fixed
AC - Fixed
EC - Depends on Electricity Output and Cost of Fuel
EO - Depends on Demand for electricity
SC - if Any
From the formula above, we can deduce the following;
Benefit of 2 Tiers Tariff Structure over Absolute Take or Pay Tariff Structure
The benefit of this 2 tier tariff structure (capacity + energy) over the absolute "take or pay" tariff structure is that it allows EVN to commit only a portion of its payment under "take or pay" scheme. The remaining portion would be based on usage depending on the demand. Both tariff structures entail pass through of all fuel and production costs. Although the 2 tier tariff structure may not result in cheaper supply of energy on per KwH basis, it gives EVN the flexibility in managing its energy supply more effectively. This flexibility is important to vietnam because it has to deal with the uncertainty of its future demand landscape.
Roles of Capacity Charge
The capacity charge is fixed and predetermined on a per Kwh basis of Dependable Capacity of the power plant. Capacity payment is made to the IPP as long as the power capacity is available, and regardless of whether the capacity is fully utilised to generate electricity.
The capacity charge covers the bulk of the tariff payment as the IPP seeks to recover its project cost and investment returns through this definite payments stream. As the capacity payment is predetermined and fixed, it has several benefits;
  1. This greatly lower the investment risks of the IPP making the project investment more attractive in relation to its risks.
  2. As this provide a guaranteed stream of future cash flows, it makes project financing easier and cheaper.
The best approach to capacity charge is using the IRR and or Payback period.

Roles of Energy Charge
The Energy charge is a charge on each KwH of electricity dispatched to EVN. It includes a pass through of all variable costs incurred in the production. There is a mechanism in place to ensure the IPP maintains and operates the plant at a maximum level of efficiency. One method is as follows;
Energy charge = Electricity Output (KwH) x Fuel Cost Factor per KwH + Variable O&M costs
Fuel Cost Factor per KwH = Agreed Heat Value (BTU) per KwH x Cost per BTU
Cost per BTU = (Total quantity of coal received x Heating Value of coal ) / Total Coal Costs
Different grades of Coal differ in Heating Value (BTU). Therefore, BTU is the most consistent measurement of Fuel costs.  Higher price of coal will translate into higher cost per BTU.
This method effectively;
  1. Allows pass through of fuel costs for IPP
  2. Ensures plant's operation at maximum efficiency 
  3. No room for cost manipulation by IPP
  4. Allows better cost management by EVN
  5. Allows flexibility for EVN in managing power supply
For illustration Only;
  1. Capacity charge is simply 12% of project cost = US$1.87b x 12%
  2. The IPP produced 7.5b KwH of electricity annually
  3. The IPP and EVN had agreed on Heat value of 12,000 BTU per KwH at PLF of 77%
  4. Total of 2.5m mt coal purchased at US$100/mt
  5. Consumption of BTU per KwH is 9,200BTU
  6. Average heating value per mt of Coal is 28m BTU
  7. O&M cost ignored 
Cost per BTU = (2.5m x 100) / (2.5m x 28m) = US$0.0000035714
Fuel Cost Factor per Kwh = 12,000 x US$0.0000035714 = US$0.04285
Energy Charge = 7,500,000,000 KwH x  US$0.04285 = US$321,426,000
Fuel Cost = (7,500,000,000 x 9,200BTU x US$100) / 28,000,000BTU = US$246,428,571
Energy Profit to IPP =  US$321,426,000 - US$246,428,571 = US$74,997,429
Total Tariff = US$224m + US$75m = US$299m
Cautious : The above is just an illustration for ease of comprehension, NOT to be taken as a prediction

Conclusion :
This article did not give a profit forecast as a formula without inputs gives no answer. The vital inputs remain hidden. This article only aimed to show that;
The tariff payment is not simply on the basis of consumer tariff x electricity output.
The 2 tiers tariff structure clearly addressed the needs and concerns of both signatories and the financiers.
The tariff structure benefits the IPP by promising;
  1. A definite future cash flow
  2. Ease of financing and lower borrowing costs
  3. Upside potential through energy charge 
The tariff structure benefits the purchaser (EVN) by promising;
  1. A predictable cost structure of its power
  2. A flexibility in managing its power supply
  3. Efficient operation of its power plants
Hopefully through this article, readers can have an idea on the matrix of the tariff payments in the PPA. 

Thank You. 
PS : I will update this article when new thought emerges. Please watch out for this space.

For Further reading : The PPA structure in Indonesia
To encourage private sector investment, PLN offers IPPs security of future revenue through power purchase agreements (PPAs). A key characteristic of a PPA is that the offtaker absorbs all market risk. PLN is responsible for developing an estimate of long-term power demand. If the demand does not meet expectations, PLN is still obligated to pay for the contracted amount under the PPA’s take-or-pay provisions. This payment component is called a capacity payment, or capacity charge. Capacity payment is made to the IPP as long as the power capacity is available, and regardless of whether the power generated is needed, or dispatched. In return, PLN is guaranteed long term output from the project. This report analyses the risk of overpaying for electricity under the regime of PPAs, which guarantee capacity payments for coal-fired power generation. Such overpayments stand to defeat efforts to achieve energy security at the lowest cost possible.


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